Take these three steps to save money on tax day.
- Get it. Low-income families and individuals can boost their tax refunds by up to $5,666 through the Earned Income Tax Credit. The EITC can either reduce the taxes you owe or give you cash back. But according to the Urban Institute, just 27 percent of eligible Hispanics even know about this benefit, meaning they never get the free money they deserve. And it won’t help just this year: if you were eligible in the past but didn’t apply, you may be able to file an amended return.
- Keep it. Many who are eligible for the EITC — and a disproportionate number of Hispanics — take out rapid refund loans, also known as refund anticipation loans. Don’t be tempted. While your tax refund may reach your wallet faster, the amount will be less because these short-term loans from private companies incur hefty charges. “The rates are sky-high, and people don’t often realize that,” says Laura Castañeda, co-author of The Latino Guide to Personal Money Management. If the Internal Revenue Service (IRS) owes you a refund, it should come just weeks after you file, so wait for it if you can. For the quickest refund, file electronically.
- Save it. Once you get your refund, it’s easier than ever to save at least part of it. Last year the IRS introduced split refunds, so you can divide your refund among up to three checking or savings accounts, regardless of which 1040 form you use or whether you file electronic or paper returns. You can also have your refund sent directly to individual retirement accounts (IRAs) and health savings accounts. With split refunds, you can spend some and save some.
Visit the IRS online for more information about the EITC.
For more information, visit AARP Tax-Aide online, which can provide year-round tax counseling, 24 hours a day, seven days a week.